Important Words and Phrases

• Insurance


  A social device which combines the risks of individuals into a group, using funds contributed by members of the group to pay for losses
• Insurance


  A device for reducing risk by combining a sufficient number of exposure units to make their individual losses collectively predictable. The predictable loss is then shared proportionately by all units in the combination
• Insurance


  A contract, which is called a policy, in which an individual or organization receives financial protection and reimbursement of damages from the insurer or the insurance company
• Insurance


  Some form of protection from any possible financial losses
• Most definitions of insurance include three important points:

   There is a transfer of risk from the insured to the insurer

   The insureds contribute to a common fund from which losses are paid  The insurer pools or combines a large number of separate exposure units.
• The basic principle of insurance is that an entity will choose to spend small periodic amounts of money against a possibility of a huge unexpected loss. Basically, all the policyholders pool their risks together. Any loss that they suffer will be paid out of their premiums which they pay.
• Insurer 


   An insurer is the company or person who promises to reimburse

   Every corporation, partnership, or association, duly authorized to transact insurance business as elsewhere provided in Insurance Code
• Insured (sometimes called the assured) 


  The one who receives the payment, except in the case of life insurance, where payment goes to the beneficiary named in the life insurance contract.
• Risk 


  Uncertainty concerning loss
• Peril


  The cause of loss; a loss producing agent like fire, lightning, earthquake, collision, computer breakdown, typhoon, etc.
• Hazard


  Condition that tends to create or increase the chance of loss from a given peril. Ex.: low lying areas, storing flammable materials within building, open sided buildings, defective signal/tail lights
• Physical


  Hazard Objective characteristics that increase the chance of loss Ex. manufacturer of combustible goods
• Moral Hazard 


  Subjective characteristics of the Insured. Ex. dishonesty, credit standing, past losses
• Morale Hazard


  Characterized by carelessness or indifference to loss because of insurance coverage. Ex. Poor housekeeping, lack of loss prevention
• Contract of Insurance 


  An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event
• Policy


  The written instrument in which a contract of insurance is set forth
• Premium


  Is the consideration paid by the insured—usually annually or semiannually—for the insurer’s promise to reimburse.